2012 (3) TMI 287 - HC - Income Tax

The assessee returned an income of approximately Rs.19 crores - original order of assessment demand of Rs.2 crores but reduced upon rectification to Rs.1.30 crores initially and thereafter, to Rs.1.18 crores. assessee filed an appeal that additions have been made by the Assessing Officer on three counts (i) Interest paid to HDFC Bank; (ii) The annual letting value of house property; and (iii) Sales promotion expense - Of the total demand of Rs.1.18 crores, an amount of Rs.78 lakhs has been adjusted against the refund due and payable AY 2010-11- Since the refund has already been adjusted, and the balance of the demand was Rs.40.54 lakhs stay on the recovery of balance until the disposal of the appeal before the CIT (Appeals) - we direct that the CIT (Appeals) shall expedite the disposal of the appeal and endeavour to do so within a period of three months from order date -make the rule absolute by modifying the order passed by the Commissioner of Income Tax by staying the recovery of the balance amount of Rs.40.54 lakhs pending disposal of the appeal.

Summary

Issues:
1. Adjustment of refund against outstanding demand for different assessment years.
2. Validity of additions made by the Assessing Officer.
3. Jurisdiction and duty of fairness of Assessing Officer and CIT (Appeals) in granting stay of demand.

Issue 1: Adjustment of refund against outstanding demand for different assessment years
The petitioner filed his return of income for Assessment Year 200910, declaring a total income of Rs.19.41 crores. The Additional Commissioner of Income Tax assessed the total income at Rs.22.43 crores, resulting in a demand of Rs.2,00,48,630. After rectification applications, the demand was scaled down to Rs.1.18 crores. A refund of approximately Rs.78 lakhs for Assessment Year 201011 was adjusted against the outstanding demand for Assessment Year 200910. The petitioner was required to pay the balance of Rs.40.54 lakhs. The court noted that the ends of justice required a stay on the recovery of the balance amount until the appeal before the CIT (Appeals) was disposed of. The court directed the CIT (Appeals) to expedite the appeal's disposal within three months. The order passed by the Commissioner of Income Tax was modified to stay the recovery of the balance amount pending the appeal's disposal.

Issue 2: Validity of additions made by the Assessing Officer
The petitioner's counsel argued that the CIT (Appeals) failed to consider submissions regarding the additions made by the Assessing Officer, including interest paid to HDFC Bank, annual letting value of house property, and sales promotion expenses. The petitioner claimed that the additions were arbitrary, as interest was previously allowed, property valuation was accepted in previous years, and expenses were legitimate professional expenditures. The Revenue's counsel contended that the refund adjustment was made following due intimation under Section 245.

Issue 3: Jurisdiction and duty of fairness of Assessing Officer and CIT (Appeals) in granting stay of demand
The court emphasized that the power to grant a stay of demand under Section 220(6) is a judicial power, requiring fairness to the assessee. It highlighted the quasi-judicial nature of the Assessing Officer and CIT (Appeals) under the Income Tax Act, 1961. The court noted that the authorities should act fairly and not merely as tax gatherers. Referring to precedents like KEC International vs. B.R.Balakrishnan, the court stated that the parameters for granting a stay of demand have been established. In this case, considering the petitioner's income, professional status, and submissions on the additions made, the court found that a stay on the recovery of the balance amount was warranted until the appeal's disposal, directing the CIT (Appeals) to expedite the process within three months.

This detailed analysis covers the adjustment of refunds, validity of additions made by the Assessing Officer, and the jurisdiction and duty of fairness of the authorities in granting a stay of demand as outlined in the Bombay High Court judgment.